Directors justify their salaries by pointing to market forces. But the spectacle of poorly performing bosses skipping away from their disasters encumbered by sackfuls of cash has hardened opinion against those whose remuneration exceeds their talent.
Pay is a tricky subject to approach a company director about. Sick of accusations that they are just fat cats whose extreme obesity is the result of lapping up all the extra cream, the directors become prickly when asked to justify their money: “First of all I think that is an extremely cheeky question. Of course we are worth it,” said the chief executive of a leading contractor, before slamming his phone down.
Perhaps that company’s workers would not agree. This year’s Building top 100 contractors league tables show that, since 1995, the income of the highest paid directors at the UK’s leading contractors has increased 101% – taking home an average of £427,000 in 2002. At the same time, the average worker in construction has seen a wallet expansion of 47%, to £27,200 last year. Mike Foster, a construction analyst with stockbroker KBC Peel Hunt, surmises what the lowly site builder must feel: “There is very little correlation between a company being successful and the remuneration of its directors.”
There seems to be some truth in this argument. The best-paid director is at Liverpool-based contractor and housebuilder David McLean; he receives a generous £3.6m – seven times more than in 2001. Yet the company is ranked 93rd by turnover and 66th by pre-tax profit in the contractors’ leagues. On the flip side, Amec is easily the biggest contractor by turnover, yet chief executive Sir Peter Mason warrants only the 15th highest pay.
The directors themselves – unsurprisingly – argue that their pay reflects their market value. Berkeley chief executive Tony Pidgley, who received £1.47m last year, says his money reflects the success of the housebuilder and the support of shareholders, who have to approve the salary at the annual meeting. “You’ve got to look at the performance of the company. We’ve had a very clear policy to protect the balance sheet; we’ve got £200m of cash flow and a 25,000-unit landbank.”
Many directors’ pay is skewed heavily towards bonuses, ensuring that their dough is reward for good management. Alan Cherry, chairman of Countryside Properties, says: “I have a very low basic salary – it’s heavily performance-related. In a not-so-good year, I will not be so well off.”
Cherry may describe his basic salary as “very low” and argue that directors of housebuilders receive little in comparison with their peers at property companies, but he still gets six figures – the average Countryside employee made £26,000 in 2002 and £24,800 the year before. Cherry does, however, concede that executive salaries have risen at a steep gradient in recent years: “This was the danger of transparency,” he says, referring to the requirement introduced in the mid-1990s that board-level salaries be disclosed in the annual report. “Every year a remuneration committee and its external consultants look at other companies in the sector and they say ‘our bloke isn’t in that pay bracket’, so they pay him extra.”
The general outcry over directors’ salaries in the past few years does not solely centre on the pay itself. What has annoyed the public most has been the massive pay-offs that the top dogs get even if they seem to have done a poor job – whereas the man on the street would be lucky to get a month’s salary and his remaining holiday time along with his coffee mug and P45. Teather & Greenwood analyst David Taylor says, with no little chagrin: “I’m not too struck on the two-year rolling contracts – it’s not so much what they get paid that gets up people’s noses, it’s when the companies do badly and they get a big pay-off.”
A case in point is the pay-off that Brian Staples, the former chief executive of Amey, received in January. The company had suffered a horrendous, year-long public meltdown. Staples, however, stepped down with a £287,000 pay-off in salary and pension contributions. The Guardian described the settlement as a “controversy”; The Mirror was closer to the money; it commented that “every cloud has a silver lining for Brian Staples”.
The best-paid director in the construction sector receives 144 times the wage of the average employee
Tables compiled by Martin Hewes, email email@example.com